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September 15, 2010 – Comments (6)

As of late, I can't open my mailbox without seeing an obnoxious ad of the Fool's latest trading idea, "Big Short". The front page of the Fool is alive with headlines touting their shorting advise, which then overflow into the blogs, comments, and archives. The "groundbreaking news" that the average stock goes down and that professionals from financial institutions such as Goldman Sachs and Morgan Stanley were not aware of this fact is so artfully presented that you may even wish it were true.

If you turn off your critical filter for a minute, you may get the impression that the Fool has just discovered a quick and easy path to riches.

But my advise is to keep the filter on.

It's NOT an easy way to riches. 

6 Comments – Post Your Own

#1) On September 16, 2010 at 3:42 PM, rfaramir (28.68) wrote:

Just an easy way to win on CAPS, Kettle?

(I noticed 19 of your latest 20 recs are Underperforms.)

Do you just not want the competition on the short side?  Does something about the advertising just turn you off, even though you agree with the concept?  (I'm with you there, much advertising turns me off.)

It's normally here-today-gone-tomorrow trolls who complain about the Fool's advertising, but with your record, you're no idiot.  So I'm truly curious what has you riled up. 

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#2) On September 16, 2010 at 3:53 PM, starbucks4ever (92.12) wrote:

There are two differences between Caps and real life. First, in Caps you can afford to blow everything because the worst thing that may happen to you is slight embarassment before other players whom you know by their avatars, and the best thing is gaining 10,000 points and getting your 15 minutes of fame. Second, in Caps you can sit on your 500% paper loss for years knowing that you won't receive a margin call. I would be an idiot if I kept my Caps shorts in my real life portfolio. 

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#3) On September 17, 2010 at 2:22 PM, rfaramir (28.68) wrote:

Another difference between CAPS and real life, is that CAPS calls are relative to the S&P500 index.  An underperform stock pick can actually go up, but if it goes up less than the index, you win.  Not so with a real life short.

To make it worse, in an inflationary environment, the dollar value of stocks will go up on average, even if they are actually declining in constant/real value.

So shorting is going to be really hard, on average.  But with judicious picks, it seems to be a good way to make money.  I know my CAPS score has gone way up since I started shorting, but I'm not quite to the point of shorting in real life to speak with experience there. 

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#4) On September 17, 2010 at 2:42 PM, Momentum21 (97.92) wrote:

TMF is pretty good about their warnings and disclaimers. It is a bit harsh to refer to it as "disgusting" for aggressive marketing in this age where just about everyone claims to have the answer.

If TMF was publicly traded, and wasn't trying to take advantage of a market opportunity, investors would be livid. Let them make a buck man! : )  

It would be real interesting to see MF site traffic on up days vs down days for the market (I say it is way up on big down days).

I bet they will do pretty darn well with the big short...and if so I wish them well. If someone is going to go short they need all the advice they can get, since it is much, much harder in my opinion (as you say)...


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#5) On September 17, 2010 at 2:44 PM, starbucks4ever (92.12) wrote:

Well, the comparison bias is a lesser problem because you can always short stocks and go long the index. I don't see this as a major objection to shorting in real life. But the margin call risk is a formidable objection. Yes, there are ways to reduce it but you have to know what you're doing, and you must choose your timing right. But the Fool is going to short junk stocks in the early phase of a bull market. That's either outright bankruptcy if you're not hedged, or if you're hedged, it's a 25% loss, speaking realistically.

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#6) On September 17, 2010 at 3:03 PM, starbucks4ever (92.12) wrote:


They ARE in fact publicly traded, via that monstrous thing called Motley Fool Independence Fund (FOOLX), which I would avoid like the plague because of its 2.30% expense ratio.  (Yes, these are the guys who rant against the greedy Wall Street!) And of course I am not against them making a buck as long as it's not off of me. The novice investors, however, will get burned, unless Del Veccio is extraordinarily lucky with his short picks. He will need lots of luck if subscribers are ever to recover the $2000 cost of shorting advice they're getting. 

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